$15 million per person, roughly $30 million per married couple. That's what the federal government now lets you shield from estate, gift, and generation skipping tax combined, permanently, after the One Big Beautiful Bill Act locked in the exemption instead of letting it revert in 2026. Hand that money straight to a child who later hands it to a grandchild and the IRS taxes it again at the second handoff. Route it through a dynasty trust instead and that same $15 million skips both future estate tax events entirely, compounding for a hundred years or longer in a state that never touches it. So why would anyone choose the first option? The answer has less to do with the money than with who actually controls it once it goes into the trust.
A dynasty trust isn't exotic. It's an irrevocable trust drafted to last as long as state law allows, sometimes forever, holding assets for multiple generations without those assets ever counting as part of any individual heir's taxable estate. Charles Schwab's own materials lay out the comparison plainly. A grantor who transfers $15 million outright to a child, who then passes it to a grandchild, faces estate tax exposure at every generational handoff. A grantor who instead funds a dynasty trust with the same $15 million, using her unified lifetime estate, gift, and generation skipping exemptions, lets that money compound across generations without triggering the tax each time it passes down. What follows is why that gap exists, how large it gets, and who's actually positioned to use it.
Why The Generation Skipping Tax Exists
The Unified Exemption, 2026
Estate, gift, and generation skipping tax draw from one shared exemption
Per Person
$15M
Per Married Couple
$30M
Without OBBBA, exemption would have reverted (2026) to roughly
$7M per person
Source: Charles Schwab; One Big Beautiful Bill Act (OBBBA)
Congress wrote the generation skipping transfer tax into the code in 1976 for one reason: grandparents were skipping their own children entirely and gifting straight to grandchildren, dodging an entire layer of estate tax that would have applied if the money passed through the middle generation first. Congress closed that loophole. But closing it created a new set of rules that sophisticated planning could work around again decades later. That workaround is exactly what dynasty trusts do now.
- 1976: the GSTT is enacted specifically to stop the grandparent to grandchild skip
- 37.5 years: the age gap that federally defines a skip person under current rules
- 2026: the year the higher unified exemption becomes permanent under the OBBBA rather than sunsetting back to roughly $7 million per person
- $15 million: the approximate 2026 per person exemption covering estate, gift, and GST tax combined, since all three draw from one shared exemption pool
Here's the core design choice that matters. Estate tax, gift tax, and GST tax aren't three separate allowances stacked on top of each other. They're one number, consumed no matter which route the wealth takes out of the estate. That single fact is why timing and structure, not just the size of the gift, determine how much of a fortune actually survives contact with the IRS. Families who understand this before funding a trust should talk to their attorney about allocation elections now, not after the next gift is made. Next: what that structure actually looks like next to the plain alternative of an outright gift.
The Two Schwab Scenarios, Side By Side
Two Paths for the Same $15 Million
Outright Transfer
Grantor
$15M gift
Child
Enters taxable estate
Grandchild
Taxed again
Dynasty Trust
Grantor
$15M into trust
Child
Benefits, no estate inclusion
Grandchild
No second tax event
Source: Charles Schwab dynasty trust illustration
Schwab's illustration isolates the variable that matters: identical $15 million transfers, different structures, wildly different outcomes two generations later. In the outright transfer scenario, the $15 million goes to the child using the grantor's full exemption. When that child later leaves the remaining assets to a grandchild, the money has already sat inside the child's taxable estate, so a second layer of estate tax applies on whatever growth occurred, assuming the child's own exemption can't cover it.
In the dynasty trust scenario, the same $15 million funds the trust using the same combined exemptions, but the assets never enter the child's estate at all. The child can receive income and even principal distributions under the trust terms, can use and benefit from the assets, without the trust corpus ever getting taxed again at the child's death or the grandchild's death.
- $15 million: the initial funding amount in both hypothetical scenarios
- 2 generations: the number of wealth transfers the trust structure shields from repeated estate taxation
- 0: the number of additional estate tax events triggered inside a properly structured dynasty trust as it passes down generations
- 21 years past the death of the last beneficiary alive at creation: the traditional common law rule against perpetuities that some states still apply, versus states like South Dakota and Nevada that have abolished it entirely
The gap between those two outcomes isn't a rounding error. It compounds every time the trust assets appreciate, because appreciation happening inside the trust structure also gets removed from anyone's taxable estate going forward. Anyone comparing structures before a major gift should model that compounding gap over two generations, not just the first handoff. And that compounding depends heavily on where the trust gets set up, since state law determines how long it can run and how it's administered.
Picking A State That Wants The Business
Outright Transfer vs Dynasty Trust
| Feature | Outright Transfer | Dynasty Trust |
|---|---|---|
| Initial transfer | $15M to child | $15M into trust |
| Exemption used | Full lifetime exemption | Estate, gift, GST exemptions |
| Counted in child's estate | Yes | No |
| Tax at second handoff | Applies to growth | None |
| Child access to assets | Full ownership | Income and principal per trust terms |
Source: Charles Schwab dynasty trust illustration
Dynasty trusts don't exist in a vacuum. They live inside a specific state's trust law, and states compete hard for this business because trust administration fees are a real revenue stream. South Dakota, Nevada, Delaware, and Alaska have each rewritten their trust codes over the past few decades specifically to attract out of state grantors who will never set foot in Sioux Falls or Las Vegas but will happily pay a trust company there to administer tens of millions of dollars for a hundred years.
The competition between these states isn't subtle once you look at what changed and when.
- South Dakota: abolished its rule against perpetuities in 1983, among the earliest states to do so, and has kept refining trust privacy statutes since
- Nevada: allows dynasty trusts to run for 365 years, one of the longest statutory periods in the country
- Delaware: long favored for its Court of Chancery, a specialized court that resolves trust and corporate disputes without a jury
- Alaska: was among the first states in the late 1990s to combine long trust duration with strong asset protection features for self settled trusts
None of this requires the grantor to live in, or even like, any of these states. A family in California or New York can direct their attorney to establish the trust under South Dakota law, appoint a South Dakota trust company as trustee, and never change a single thing about where they actually live. Choosing the governing state is a drafting decision an attorney makes on the client's behalf, and it deserves as much attention as the size of the gift itself. That decision now plays out against a federal exemption number that only recently became fixed instead of temporary.
What The 2026 Exemption Reset Actually Changed
One Shared Exemption, Three Possible Uses
The $15M exemption is one pool, consumed regardless of which tax route applies
Any dollar used against one type reduces what remains for the others, total capped at $15M per person
Source: IRS unified exemption rules; Charles Schwab
For years, estate planning attorneys worked under a known deadline. The doubled exemption created by the 2017 Tax Cuts and Jobs Act was set to sunset on January 1, 2026, cutting the per person exemption roughly in half, back toward the $7 million range after inflation adjustments. That deadline drove a wave of urgent trust funding through 2024 and 2025, advisors telling clients to use it or lose it.
The One Big Beautiful Bill Act, signed in July 2025, changed the calculus by making the higher exemption permanent rather than letting it revert. The exemption sits at approximately $15 million per individual for 2026, meaning a married couple can shield around $30 million using both spouses' exemptions combined.
- 2017: the TCJA doubles the exemption for the first time, originally intended as temporary
- January 1, 2026: the date the exemption was previously scheduled to revert downward before the law changed
- July 2025: when the OBBBA was signed, permanently raising and indexing the exemption instead of letting it sunset
- $30 million: the approximate combined shelter available to a married couple using both individual exemptions in 2026
This permanence removes the artificial urgency that dominated planning conversations for nearly a decade. It doesn't remove the incentive to act, though. Assets that go into a dynasty trust today start their multi generation, tax sheltered compounding clock immediately. A family deciding whether to fund a trust this year versus next year is really deciding how many extra years of untaxed growth to give up. But the permanent exemption and the state level trust structures only matter to households that can absorb the cost of setting one up, which narrows who this actually serves.
Who Actually Uses This Structure
Key Dates in Generation Skipping Tax Policy
1976: GSTT enacted
Ongoing: 37.5 year age gap defines a "skip person"
Pre 2026: Exemption set to sunset to roughly $7M
2026: OBBBA locks in roughly $15M exemption permanently
Source: Internal Revenue Code; One Big Beautiful Bill Act
Dynasty trusts are legally available to almost anyone with an attorney and enough assets to justify the setup and ongoing administration costs, but the economics only work past a certain threshold. Setting up and maintaining one of these trusts, drafting, trustee fees, ongoing tax filings, typically runs into the tens of thousands of dollars in the first year alone, before you even count the assets themselves. That cost is trivial against a $15 million transfer and prohibitive against a $150,000 one.
This is where the structural critique sharpens. The tax code technically applies the same exemption amount to every citizen, but the tools required to use that exemption efficiently, dynasty trusts, generation skipping allocation elections, valuation discounts on transferred business interests, only make economic sense for households already sitting well above the median net worth.
- $0: the exemption benefit realized by a family whose total estate falls under roughly $1 million, since they were never going to owe estate tax regardless of structure
- Tens of thousands of dollars: typical first year setup and administration cost range for a properly drafted dynasty trust
- Multiple generations: the minimum time horizon required for the tax deferred compounding advantage to meaningfully outweigh the administrative drag
- 1 unified exemption pool: the same finite resource every taxpayer draws from, regardless of net worth, which is why the tool matters more as the estate size grows
The rules don't favor the wealthy explicitly. They're neutral on paper and expensive to use in practice, which produces the same outcome anyway. That's the actual answer to the question this piece opened with: families default to the outright gift, taxed twice, not because they prefer paying more tax, but because the structure that avoids it only pays for itself once an estate clears a specific size, and the control a grantor gives up to a trustee only makes sense once the tax saved exceeds that cost. Readers weighing this structure should size up their own estate against the setup cost before assuming the exemption applies to them in any practical sense. The mechanism that decides who benefits will outlast whatever the exemption number happens to be next year.
This article is for informational and educational purposes only and does not constitute financial, investment, or legal advice. The views expressed are analytical observations and should not be relied upon for personal financial decisions. Always consult a qualified financial advisor before making investment decisions.